Apple Inc.’s ability to pay a special dividend is limited because almost 70 percent of its cash is outside the U.S., reinforcing why investors aren’t projecting an extra payout by year’s end.
While dozens of companies are paying special one-time dividends ahead of a potential jump in taxes, Apple probably won’t join in partly because so much of its $121.3 billion in cash is held overseas, according to analysts. Apple is likely to focus on boosting its quarterly $2.65-a-share dividend, said Brian White of Topeka Capital Markets Inc.
Oracle Corp., Wal-Mart Stores Inc., Costco Wholesale Corp. and at least three dozen other companies have announced special dividends this quarter, according to data compiled by Bloomberg. The payouts come ahead of a potential rise in the top federal tax rate on dividends to 43.4 percent from 15 percent next year as part of the so-called fiscal cliff, a blend of tax increases and spending cuts that will take effect if U.S. lawmakers don’t forge a budget deal.
Apple doesn’t share the same concerns as other companies over the tax increase, White said.
“That’s not how they operate,” White said in an interview. “They won’t be driven by some transactional event -- it’s just not their style to try to game taxes or game the market.”
Steve Dowling, a spokesman for Apple, declined to comment.
White’s comments matched those of Wall Street analysts such as Chris Whitmore of Deutsche Bank AG. Instead of the special dividend, investors can expect Apple to increase its current payout by at least 10 percent, said Abhey Lamba, an analyst with Mizuho Securities USA.
“They will continue to give that dividend and will probably start growing it,” Lamba said.
Much of the company’s cash flow is being used for the dividend announced this year, Lamba said.
Investors are more concerned that Apple’s long-term growth prospects may be fading, rather than whether the company will pay a special dividend, said Andy Hargreaves of Pacific Crest Securities LLC. Increased competition for the iPhone and iPad, as well as investors selling shares to avoid paying higher capital gains taxes, have contributed to the stock losing almost a quarter of its value since hitting an all-time high in September, he said.
Apple rose 2.2 percent to $541.39 at the close in New York. While the stock has declined 23 percent since posting a record close of $702.10 on Sept. 19, it remains up 34 percent this year.
Cupertino, California-based Apple reinstated dividends starting in the quarter beginning July 1 and adopted a plan to buy back $10 billion in shares over three years. Investors saw that as a sign Chief Executive Officer Tim Cook was more willing than late co-founder Steve Jobs to channel part of cash and investments directly to investors.
The moves will cost $45 billion over three years and expand Apple’s investor pool, Cook said at the time. Apple last paid a dividend in 1995, before Jobs returned as CEO and led the introduction of top-selling products including the iPod, iPhone and iPad.
Even while distributing more cash to investors, Apple will continue to add to its cash reserves, with its balance sheet reaching $250 billion by the end of 2015, White said.
“This is a cash gusher,” White said.
In an interview last week with Bloomberg Businessweek, Cook said that Apple’s cash was being managed with “the most conservative investments known to man” and that he was “involved heavily” in the decision to distribute the funds.